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Bank of Thailand Holds Off on Rate Hikes as Economy Struggles

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BANGKOK – The Bank of Thailand is facing more reasons to cut interest rates than to hike given a slowing economy and a strong currency. But the timing may not be right yet.

Policy makers are taking a more cautious approach than central banks in the Philippines, Malaysia and India, which have all cut rates recently to bolster their economies against an escalating U.S.-China trade war. With a benchmark rate of 1.75%, the Bank of Thailand says policy remains supportive of growth even after December’s hike, and any move will be determined by what the data shows.

All but one of the 22 economists surveyed by Bloomberg predict the central bank will keep the one-day bond repurchase rate unchanged on Wednesday.

“Pressure will build on the Bank of Thailand to reverse the token rate hike undertaken in late-2018,” said Radhika Rao, an economist at DBS Group Holdings Ltd. in Singapore. “The central bank might revise down its current growth forecast from 3.8% and shift guidance to dovish.”

Growth Risks

Governor Veerathai Santiprabhob has already signaled the central bank will cut its growth forecast for this year as the trade outlook worsens. A slump in exports is dragging down the economy, with the government’s planning agency last month lowering its growth forecast for this year to 3.3% to 3.8%.

The new government under Prime Minister Prayuth Chan-Ocha has delayed the fiscal budget to January from October, another possible risk to growth if investment spending slows.

Currency Gains

The baht has strengthened to a six-year high in June as fund inflows to the nation’s bonds and equities persist. The central bank said last week it’s monitoring the currency’s gains closely, especially transactions relating to “unwanted” short-term speculation.

For export-reliant Thailand, the currency’s gains are a concern for growth. The Commerce Ministry said last week the baht’s performance will hurt the competitiveness of agricultural goods.

Low Inflation

Consumer-price pressures are the least of the central bank’s concerns. Inflation returned to the 1%-4% target range in March and is expected to remain benign this year.

The Bank of Thailand still sees financial stability risks in the economy from elevated consumer debt levels, holding it back from cutting interest rates too soon.

By Eduardo Leal
Bloomberg